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CA Final Corporate Finance — practice questions

Explore 55 free Corporate Finance questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Corporate Finance questions and exercises with answers

Showing questions 1–30 of 55.

What is the primary goal of corporate finance?Read the answer and worked solution →Capital budgeting mainly sets criteria for deciding which projects?Read the answer and worked solution →Working capital management balances which items?Read the answer and worked solution →In the UK and Commonwealth countries, corporate finance is usually linked with what?Read the answer and worked solution →Financial accounting mainly focuses on what?Read the answer and worked solution →Why is preferred stock called a hybrid security?Read the answer and worked solution →How do preferred shares rank in the claim on a company's assets?Read the answer and worked solution →What is a typical feature of preferred stock?Read the answer and worked solution →What drawback does new share issue bring existing owners?Read the answer and worked solution →Why is debt usually cheaper than equity?Read the answer and worked solution →Which methods match financing maturity to assets?Read the answer and worked solution →In a perfect market, MM Proposition I says firm value is?Read the answer and worked solution →MM Proposition II adds what to equity cost?Read the answer and worked solution →What does the original MM theorem assume?Read the answer and worked solution →Once taxes enter MM analysis, what happens to debt?Read the answer and worked solution →Trade-off theory sets the debt tax benefit against what?Read the answer and worked solution →What is the pecking order of financing?Read the answer and worked solution →Which scholar is associated with popularizing the pecking order theory?Read the answer and worked solution →Why might investors mark down the price when a firm announces new equity?Read the answer and worked solution →Market timing says firms choose what?Read the answer and worked solution →Levered owners take a risky negative NPV project. What effect is this?Read the answer and worked solution →Why might managers reject positive NPV projects?Read the answer and worked solution →How can higher leverage help control the free cash flow agency problem?Read the answer and worked solution →In bankruptcy, which claim stands first in the seniority structure?Read the answer and worked solution →A firm raises the share of short-term debt in its capital structure. What risk rises?Read the answer and worked solution →What does the hurdle rate of a project represent?Read the answer and worked solution →Which measure reflects a project's financing mix when setting the discount rate?Read the answer and worked solution →A project costs 1,000 and returns 600 yearly for two years. NPV at 10 percent?Read the answer and worked solution →A project costs 500 and returns a single 540 after one year. At a 10 percent hurdle rate, what should the firm do?Read the answer and worked solution →In a basic sensitivity analysis, how does the analyst treat the other inputs?Read the answer and worked solution →

Worked practice questions

What is the primary goal of corporate finance?

  1. Maximizing the staff headcount
  2. Maximizing annual sales volume
  3. Minimizing the yearly tax paid
  4. Maximizing shareholder value
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Correct answer: D. Maximizing shareholder value

Corporate finance exists to guide funding and investment choices that raise the value of the firm to its owners.

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Capital budgeting mainly sets criteria for deciding which projects?

  1. Daily cash expenses to approve
  2. Employees to be promoted
  3. Customers to grant credit
  4. Value-adding projects to fund
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Correct answer: D. Value-adding projects to fund

Capital budgeting screens long-term investments so only those that add value receive funds.

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Working capital management balances which items?

  1. Debt against equity
  2. Fixed assets, reserves
  3. Current assets, liabilities
  4. Dividends, retained profit
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Correct answer: C. Current assets, liabilities

It manages the short-term operating position, meaning cash, inventories, receivables and short-term borrowing.

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More Strategicfinancialmanagement topics

Mergers Acquisitions and Corporate RestructuringBusiness ValuationCapital BudgetingForeign Exchange Exposure and Risk ManagementInterest Rate RiskModern Portfolio TheoryPortfolio ManagementValuation (Finance)